LLC vs. sole proprietor: what every owner needs to know

The real difference in one sentence

A sole proprietorship is you; an LLC is a separate legal thing you own — and that separation (the “corporate veil”) is what keeps a job-site lawsuit away from your house, your savings, and your truck.

Four ways they differ

• Legal protection: the LLC’s wall is the main event. Crews on other people’s property every day make this real, not theoretical.
• Taxes: surprise — a single-member LLC is taxed exactly like a sole prop by default. The LLC’s tax power is the door it opens: only an LLC (or corporation) can elect S-Corp status later.
• Credibility: “LLC” after your name matters to commercial clients, some government jobs, banks, and lenders.
• Cost: expect roughly $50–$500 to form, depending on your state, plus possible annual fees. For most working businesses, the protection is worth it.

The three-step start

• File your LLC directly with your state’s business registry — no middleman markup
• Get your EIN free at IRS.gov — five minutes, never pay a site for it
• Open a business checking account in the LLC’s name

The plain advice: making steady money without an LLC? Form one now — don’t wait for something to go wrong. Just starting with low revenue? Sole prop is fine, for now.

Watch the full breakdown

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